Credit unions 'good value for money' but must be easier to access
In research published on Monday, one in 20 people surveyed by SCAPE, a public-sector procurement specialist, and the Association of British Credit Unions (Abcul), said they had taken short-term loans from payday firms, while the same proportion had borrowed from doorstep lenders to make ends meet. In contrast, just 3% had used credit unions.
Credit unions offer savings accounts and loans, typically to people in a small geographical area. Borrowing is normally far cheaper than that available from a commercial lender, and in 2013 the Archbishop of Canterbury said he wanted to compete Wonga out of existence by offering loans through a church credit union.
However, the survey suggests that positive publicity for credit unions in recent years has convinced consumers that they make financial sense. Of those questioned, 41% said credit unions were good value for money, compared with only 1% who said the same of doorstep lenders and 2% who saw payday loans as being good value.
While take-up was low, 62% said they would use credit unions if accessing them was easier. Abcul is working on how to make credit unions more accessible through online and mobile channels and via payroll deduction schemes – the sort of innovation it said had led to the growth of credit unions in the US, where membership has passed 100 million people and there are now $1.2tn (£773bn) of assets under management.
It is worrying that people have turned to payday lenders who can charge over 2,000% APR and technically legal doorstep ‘loan sharks’ whose fees and methods are exorbitantly higher, rather than seek alternative finance such as in the form of credit unions.
Mark Robinson, SCAPE, Group Chief Executive
“Equally, we are concerned that even though the recession has ended and the UK economy is growing, people are still having to rely on borrowing money from their friends and family, and are not in a position to save for when the going gets tough.”
The chief executive of Abcul, Mark Lyonette, said he wanted employers to make credit union membership an easier option for staff. “The most successful credit unions in the world have strong links with employers who allow staff to save and repay loans through payroll deduction. In fact in some places, credit union membership is seen as a fairly standard employee benefit,” he said.
However, a regulatory clampdown on the payday loans sector – led by a cap on the overall cost of loans – appears to be benefitting vulnerable borrowers. Citizens Advice said that the number of complaints it had received over payday loans had nearly halved since last year. The rights organisation said it helped with 5,554 payday loan problems across England and Wales from January to March 2015, marking a fall of 45% on the same period in 2014, when 10,155 problems were reported.
Related News & Blogs
Modern slavery in the UK
A practical guide for SMEs on how to mitigate the risk of modern slavery in their operations. ...
Procurement reform: So, what’s in it for the construction industry?
Peter Ware, Browne Jacobson and John Simons, SCAPE discuss the consultation Green Paper...